We all heard the phrase “the Kodak moment.” How did the moment get blurred? How did a company having 90% of the market share have to file for bankruptcy? The Kodak case study is used to warn top-level executives to stand up and respond when disruptive developments encroach on the market.
What actually happened at Kodak? Was it the technology to be blamed?
Well, to our surprise, the first prototype of a digital camera was created in 1975 by Steve Sasson, an engineer working for Kodak. The camera was pretty big, like a toaster, and it took around 20 seconds to take an image which was of low quality, and on top of it, required a complicated connection to a television to view, but clearly it had massive disruptive potential.
Kodak’s core business was selling film, hence it was obvious that challenging times were ahead for the company. From the film, the camera business went to digital and finally, it came handy on a mobile.
There was also a shift in consumer behavior — people started sharing pictures online instead of printing them.
A lot of experts say Kodak was so blinded by its success that it completely missed the rise of digital technologies.
But is it true?
Well, to our surprise, the first prototype of a digital camera was created in 1975 by Steve Sasson, an engineer working for Kodak. The camera was pretty big, like a toaster, and it took around 20 seconds to take an image which was of low quality, and on top of it, required a complicated connection to a television to view, but clearly it had massive disruptive potential.
Mr. Sasson went to the management and showed the proto. The management’s response to it was — “That’s cute — but don’t tell anyone about it.”
So Kodak actually invented the technology but didn’t invest in it. Spotting something and doing something about it are very different things.
The same difference cost Kodak 90% market share and a destiny of bankruptcy!
Another disruption occurred when cameras merged with phones and people shifted from printing pictures to posting them on social media.
Did Kodak really miss that opportunity?
Before Facebook was even coded and Kevin Systrom was nine years away from building Instagram, Kodak acquired a photo-sharing site called Ofoto in 2001. Kodak shot the right arrow. But did it hit the mark?
Kodak could have made Ofoto a life networking site where people could share pictures, personal updates — they would have been bigger than Facebook by now.
Unfortunately, the company had some other plans. Kodak used Ofoto to try to get more people to print digital images.
It finally got sold to Shutterfly as part of its bankruptcy plan for less than $25M in April 2012. The same month, Facebook acquired Instagram for $1B — the 13-member company Kevin Systrom had co-founded 18 months earlier.
What about the competitors? Did they also behave similarly?
Well, not exactly.
While Kodak stagnated and ultimately stumbled, Fuji aggressively explored new opportunities, creating products adjacent to its film business, such as magnetic tape optics and videotape, and branching into copiers and office automation, notably through a joint venture with Xerox. Today the company has annual revenues above $20 billion, competes in healthcare and electronics operations, and derives significant revenues from document solutions.
Companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models that disruptive change opens up.
Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business.
So, if your company is beginning to talk about a transformation, make sure you ask three questions:
- What business are we in today?
The question is not about your technologies, offerings, or categories. Instead, it’s about the problem you are solving for customers, or, in our parlance, “the job you are doing for them.”
For Kodak, that’s the difference between framing itself as a chemical film company vs. an imaging company vs. a moment-sharing company.
- What new opportunities does the disruption open up?
Disruption is actually a great growth opportunity. Disruption always grows markets, but it also always transforms business models.
- What capabilities do we need to realize these opportunities?
Incumbents are best positioned to seize disruptive opportunities. After all, they have many capabilities that entrants are racing to replicate, such as access to markets, technologies, and healthy balance sheets. Of course, these capabilities impose constraints as well and are almost always insufficient to compete in new markets in new ways. Approach new growth with appropriate humility.
Kodak remains a sad story of potential lost. The American icon had the talent, the money, and even the foresight to make the transition. Instead, it ended up the victim of the aftershocks of disruptive change. COVID-19 is also a disruption in the way businesses work. It’s important to address the above 3 questions now if, as a business leader, you haven’t.